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Bull Call Spread Strategy Overview

The document outlines a Bull Call Spread option strategy, which is utilized when an investor anticipates a moderate increase in stock prices. This strategy involves buying a call option at a lower strike price and selling a call option at a higher strike price, resulting in a maximum profit of Rs. 26 and a minimum loss of Rs. -4, with a break-even point at Rs. 492.3. Key reasons for choosing this strategy include reduced costs compared to a single long call and limited risk exposure.

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6 views6 pages

Bull Call Spread Strategy Overview

The document outlines a Bull Call Spread option strategy, which is utilized when an investor anticipates a moderate increase in stock prices. This strategy involves buying a call option at a lower strike price and selling a call option at a higher strike price, resulting in a maximum profit of Rs. 26 and a minimum loss of Rs. -4, with a break-even point at Rs. 492.3. Key reasons for choosing this strategy include reduced costs compared to a single long call and limited risk exposure.

Uploaded by

mmanjusha1803
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Assignment - 2

Option strategy
The option startegy used is Bull Call Spread

A bull call spread is a strategy used when an investor expects a moderate rise in the stock price. it involves components

Buying a call option at a lower strike price (long call)


Selling a call option at a higher strike price ( short call)

Ideal when the stock is expected to rise but not too aggressively.

Strike price 446.5

Buy call at Strike 490 Premium 4.2


Sell call at strike 520 Premium 0.2

Strike price Cell price Put price Return for call 1 Return for call 2 Profit/loss
400 72 0.1 -4.2 0.2 -4
430 58.05 0.1 -4.2 0.2 -4
460 31.05 0.2 -4.2 0.2 -4
490 13.95 1.2 -4.2 0.2 -4
520 3.6 11.3 25.8 0.2 26
550 0.8 27.15 55.8 -29.8 26
580 0.3 49.25 85.8 -59.8 26
610 0.1 67.5 115.8 -89.8 26
640 0.05 84.5 145.8 -119.8 26
670 0.05 110 175.8 -149.8 26
700 0.05 135 205.8 -179.8 26

MAX PROFIT 26 MIN LOSS -4

Break even 492.3

Key Reasons for choosing This stategy based on the given Data

Market expectation : Moderate Bullish Trend


The stock price is expected to rise, but not significantly
Instead of single long call the strategy reduced cost by selling a call
Lower cost compared to buying a single call option
Buying a call outright is expensive (e.g.,Rs. 72 at Rs. 400 strikes )
The bull call spread lowers the net premium by selling a call at a higher strike price

Limited Risk (Controlled losses)


Maximum loss = Rs.-4 , which is less than buying only a long call
Loss occurs if the stock stays below at Rs.490

Limited profit but lower break-even point


Maximum profit is capped at Rs. 26 ( above Rs. 520)
Helps in situation where stock might not rise significantly
Break-even price is Rs.492.3 instead of a higher risk with a single long call
it involves components

Net premium 2.3

Strike price Return for call 1 Return for call 1


400 -4.2 0
430 -4.2 350 400 450 500 550 600 650 700 75
-0.5
460 -4.2 -1
-1.5
490 -4.2
-2
520 -4.2 -2.5
550 -4.2 -3
580 -4.2 -3.5
610 -4.2 -4
-4.5
640 -4.2
670 -4.2 Return for call 1
700 -4.2

Strike price Return for call 2


400 0.2 Return for call 2
430 0.2 0.25
460 0.2
0.2
490 0.2
520 0.2 0.15
550 0.2 0.1
580 0.2 0.05
610 0.2
0
640 0.2 350 400 450 500 550 600 650 700
670 0.2
Return for call 2
700 0.2
Strike price Profit/loss
400 400 Profit/loss
430 430 800
460 460 700
490 490 600
500
520 520
400
550 550 300
580 580 200
610 610 100
640 640 0
350 400 450 500 550 600 650 700
670 670
700 700 Profit/loss
ll 1
600 650 700 750

call 2

600 650 700 750

all 2
ss

600 650 700 750

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